FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
Commission file number: 33-183336-LA
AAON, INC.
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(Exact name of registrant as specified in its charter)
Nevada 87-0448736
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(State or other jurisdiction (IRS Employer
of incorporation) Identification No.)
2425 South Yukon, Tulsa, Oklahoma 74107
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(Address of principal executive offices)
(Zip Code)
(918) 583-2266
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date. 5,891,549 shares of
$.004 par value Common Stock.
<PAGE 1>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
On pages 3 through 8 of this report.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations. Net sales increased by $4,494,000, up 15.0%
(from $30,036,000 to $34,530,000) during the three-month period ended March 31,
2000, compared to the same period in 1999. Sales to existing customers in the
first quarter accounted for 90% of the Company's business, with 10% coming from
new business. The increase in sales in 2000 resulted from continuing strong
demand from both manufacturers' representatives and the Company's national
account base, which is expected to continue throughout the rest of the year.
Gross profit increased in the first quarter of 2000 to 25.6% compared
to 24.1% in the same quarter in 1999. The increase in margins was attributable
to growth and stability of the Company's work force which impacted manufacturing
efficiencies, and continuing efforts to automate certain areas of production
which aided operating margins.
SG&A expenses decreased $357,000 (8.2%) during the three months ended
March 31, 2000, compared to 1999. This decrease is primarily attributable to
reductions in professional fees and warranty costs.
Net income during the first quarter of 2000 ($3,045,000) increased
almost five times the rate of sales (73% vs. 15%) compared to the same period in
1999, due to the improvement in gross margins, which resulted primarily from
improved operating efficiencies rather than price increases.
Financial Condition and Liquidity. Inventories increased by $2,472,000
at March 31, 2000, compared to December 31, 1999, due to the sales increase.
Property, plant and equipment increased $1,676,000 at March 31, 2000,
reflecting additions to machinery and equipment, offset in part by greater
depreciation. All capital expenditures in the first quarter of 2000 were
financed out of cash flow and borrowings under the Company's revolving credit
bank loan and equipment financing.
Current liabilities were up $4,796,000 reflecting higher reserves
related to the increase in sales and production.
Long-term debt increased $1,836,000 due to stock repurchases totaling
$5,062,000, which were largely funded by cash flows from operations.
The capital needs of the Company are met primarily by its bank
revolving credit facility. Management believes this bank debt (or comparable
financing), term loans and projected profits from operations will provide the
necessary liquidity and capital resources to the Company for the foreseeable
future. The Company's belief that it will have the necessary liquidity and
capital resources is based upon its knowledge of the HVAC industry and its place
in that industry, its ability to limit the growth of its business if necessary,
and its relationship with its existing bank lender.
<PAGE 2>
For information concerning the Company's long-term debt at March 31,
2000, see Note 3 to the Financial Statements on pages 7 and 8 of this report.
Forward-Looking Statements
This Report includes "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. Words such as
"expects", "anticipates", "intends", "plans" "believes", "seeks", "estimates",
"will", variations of such words and similar expressions are intended to
identify such forward-looking statements. These statements are not guarantees of
future performance and involve certain risks, uncertainties and assumptions
which are difficult to predict. Therefore, actual outcomes and results may
differ materially from what is expressed or forecasted in such forward- looking
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date on which they are
made. The Company undertakes no obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise. Important factors that could cause actual results to differ
materially from those in the forward-looking statements include (1) the timing
and extent of changes in material prices, (2) the effects of fluctuations in the
commercial/industrial new construction market, (3) the timing and extent of
changes in interest rates, as well as other competitive factors during the year,
and (4) general economic, market or business conditions.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
While the Company is exposed to changes in interest rates regarding
$6,735,000 of its total debt of $8,904,000, a hypothetical 10% change in
interest rates on its variable rate borrowings would not have a material effect
on the Company's earnings or cash flow.
Foreign sales account for only 2% of the Company's total sales and the
Company accepts payment for such sales only in U.S. dollars; hence, the Company
is not exposed to any foreign currency exchange rate risk.
Important raw materials purchased by the Company are steel, copper and
aluminum, which are subject to price fluctuations. The Company attempts to limit
the impact of price increases on these materials by negotiating with each of its
major suppliers on a term basis from six months to three years.
<PAGE 3>
<TABLE>
AAON, Inc.
Consolidated Balance Sheets
March 31, December 31,
2000 1999
--------- ------------
(In Thousands)
<CAPTION>
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 22 $ 25
Accounts receivable 21,970 21,327
Inventories 14,338 11,866
Prepaid expenses 1,192 566
Deferred income tax 2,693 2,693
-------- --------
Total current assets 40,215 36,477
-------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land 885 874
Buildings 15,164 14,336
Machinery and equipment 20,445 19,665
Furniture and fixtures 3,011 2,954
-------- --------
Total Property, Plant and Equipment 39,505 37,829
Less: accumulated depreciation 16,449 15,650
-------- --------
Net property, plant & equipment 23,056 22,179
-------- --------
Total Assets $ 63,271 $ 58,656
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable $ 10,742 $ 9,045
Accrued liabilities 10,862 7,763
Current maturities of long-term debt 438 438
-------- --------
Total current liabilities 22,042 17,246
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DEFFERED TAX LIABILITY 1,162 1,162
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LONG-TERM DEBT 8,466 6,630
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STOCKHOLDER'S EQUITY
Common stock, $.004 par, 50,000,000 shares 23 25
authorized, 5,889,049 and 6,206,824 issued
and outstanding at March 31, 2000 and
December 31, 1999, respectively
Preferred stock, 5,000,000 shares authorized,
no shares issued
Additional paid-in capital 2,674 7,734
Retained earnings 28,904 25,859
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Total stockholder's equity 31,601 33,618
-------- --------
Total Liabilities and Stockholder's Equity $ 63,271 $ 58,656
======== ========
*unaudited
</TABLE>
<PAGE 4>
<TABLE>
AAON, Inc.
Consolidated Statements of Operations
Three Months Ended Three Months Ended
March 31, 2000 March 31, 1999
------------------ ------------------
(In Thousands)
<CAPTION>
<S> <C> <C>
Sales, net $ 34,530 $ 30,036
Cost of Sales 25,695 22,798
-------- --------
Gross profit 8,835 7,238
Selling, general and administrative expenses 3,909 4,266
-------- --------
Income from operations 4,926 2,972
Interest expense 174 194
Other (income) expense (108) (2)
-------- --------
Income before income taxes 4,860 2,780
Income tax provision 1,815 1,016
-------- --------
Net Income $ 3,045 $ 1,764
======== ========
Net income per share (Basic) $ 0.51 $ 0.28
======== ========
(Diluted) $ 0.49 $ 0.27
======== ========
*unaudited
</TABLE>
<PAGE 5>
<TABLE>
AAON, Inc.
Consolidated Statements of Stockholder's Equity
Common Stock Paid In Retained
Shares Amount Capital Earnings Total
-------------------------------------------------------------------------------
(in thousands)
<CAPTION>
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1999 6,206 $ 25 $ 7,734 $ 25,859 $ 33,618
Exercise of Stock Options* 28 158 158
Repurchase of Common Stock* (345) (2) (5,218) (5,220)
Net Income* 3,045 3,045
----- ---- ------- -------- --------
Balance, March 31, 2000* 5,889 $ 23 $ 2,674 $ 28,904 $ 31,601
===== ==== ======= ======== ========
* unaudited
</TABLE>
<PAGE 6>
<TABLE>
AAON, Inc.
Consolidated Statements of Cash Flows
Three Months Ended Three Months Ended
March 31, 2000 March 31, 1999
------------------ ------------------
(In Thousands)
<CAPTION>
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 3,045 $ 1,764
Adjustments to reconcile net income to net
cash provided by operating activities-
Depreciation and Amortization 799 732
Change in assets and liabilities:
(Increase) decrease in:
Accounts Receivable (643) (1,072)
Inventories (2,472) 1,857
Prepaid Expenses (626) (47)
Increase (decrease) in:
Accounts Payable 1,697 (1,894)
Accrued Liabilities 3,099 2,279
Total Adjustments 1,854 1,855
------- -------
Net cash provided by (used in)
Operating Activities 4,899 3,619
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CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures (1,676) (1,447)
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CASH FLOWS FROM FINANCING ACTIVITIES
Borrowing Under Revolving Credit Agreement 16,326 13,595
Payments under Revolving Credit Agreement (14,380) (15,255)
Changes in long-term debt (110) (216)
Exercise of Stock Options 158 48
Repurchase of Common Stock (5,220) -
------- -------
Net cash provided by (used in)
financing activities (3,226) (1,828)
------- -------
NET CHANGE IN CASH (3) 344
CASH, beginning of period 25 25
------- -------
CASH, ending of period $ 22 $ 369
======= =======
*unaudited
</TABLE>
<PAGE 7>
AAON, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2000
1. BASIS OF PRESENTATION:
The financial statements included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission (SEC). Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. The Company believes that the disclosures made in these financial
statements are adequate to make the information presented not misleading when
read in conjunction with the financial statements and the notes thereto included
in the Company's latest audited financial statements which were included in the
Form 10-K Report for the fiscal year ended December 31, 1999, filed by AAON,
Inc. with the SEC. Certain reclassifications of prior year amounts have been
made to conform to current year presentations. However, management believes that
no adjustments to the financial statements are necessary.
2. INVENTORIES:
Inventories at March 31, 2000 (unaudited), and December 31, 1999, consist of the
following:
March 31, December 31,
2000 1999
----------- -----------
Raw Materials $ 8,724,000 $ 7,975,000
Work in Process 1,955,000 1,200,000
Finished Goods 3,659,000 2,691,000
------------ ------------
$14,338,000 $11,866,000
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3. LONG-TERM DEBT:
Long-term debt at March 31, 2000 (unaudited), and December 31, 1999, consists of
the following:
March 31, December 31,
2000 1999
------------ ------------
$15,150,000 bank line of
credit with interest payable
monthly at LIBOR plus 1.70%
(7.625% at March 31, 2000) due
August 31, 2001 $ 6,735,000 $ 4,790,000
<PAGE 8>
Three notes payable due in 84
equal installments totaling
$36,489, plus interest at 7.47%,
and 7.52%, collateralized by
machinery and equipment 2,169,000 2,278,000
----------- -----------
8,904,000 7,068,000
Less Current Maturities 438,000 438,000
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$ 8,466,000 $ 6,630,000
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4. FOOTNOTES INCORPORATED BY REFERENCE:
Certain footnotes are applicable to the financial statements, but would be
substantially unchanged from those presented in the December 31, 1999, 10-K
filed with the SEC. Accordingly, reference should be made to this statement for
the following:
Note Description
- ---- ----------------------------
1 Operations and Organization
2 Accounting Policies
5 Income Taxes
6 Major Customers
7 Benefit Plans
<PAGE 9>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - None.
(b) Registrant filed one report on Form 8-K during the
three-month period ended March 31, 1999. It was dated March
17, 2000, reporting an earlier adopted amendment of the
Company's Articles of Incorporation and the Company's
execution of the Third and Fourth Amendments to Second
Restated Revolving Credit Loan Agreement.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
AAON, INC.
Dated: May 3, 2000 By: /s/ Norman H. Asbjornson
-------------------------------
Norman H. Asbjornson
President
Dated: May 3, 2000 By: /s/ Kathy I. Sheffield
-------------------------------
Kathy I. Sheffield
Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 22,000
<SECURITIES> 0
<RECEIVABLES> 21,970,000
<ALLOWANCES> 0
<INVENTORY> 14,338,000
<CURRENT-ASSETS> 40,215,000
<PP&E> 39,505,000
<DEPRECIATION> 16,449,000
<TOTAL-ASSETS> 63,271,000
<CURRENT-LIABILITIES> 22,042,000
<BONDS> 8,466,000
0
0
<COMMON> 23,000
<OTHER-SE> 31,578,000
<TOTAL-LIABILITY-AND-EQUITY> 63,271,000
<SALES> 34,530,000
<TOTAL-REVENUES> 34,530,000
<CGS> 25,695,000
<TOTAL-COSTS> 29,604,000
<OTHER-EXPENSES> (108,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 174,000
<INCOME-PRETAX> 4,860,000
<INCOME-TAX> 1,815,000
<INCOME-CONTINUING> 3,045,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,045,000
<EPS-BASIC> .51
<EPS-DILUTED> .49
</TABLE>
